Division A of Sebastian Enterprises manufactures a product called XYZ. Current data for Division A are...

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Question

Division A of Sebastian Enterprises manufactures a product called XYZ. Current data for Division A are...

Division A of Sebastian Enterprises manufactures a product called XYZ. Current data for Division A are as follows:

	Capacity	61727
	Current production & sales	50594

Per unit data
	Selling price	$91.80
	Variable costs - production	32.99
	Variable costs – marketing relating to external sales	16.17
Fixed costs (total)		$780383

Division B of Sebastian Enterprises currently buys 24162 units of XYZ yearly from an outside supplier at a price of $55.00. Division B would like to buy the 24162 units of XYZ it needs annually from Division A.
What is the minimum transfer price?

Select one:

a. $72.15

b. $32.99

c. $55.98

d. $49.17

business accounting

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Answer 1

Answer #1

OPTION B: $32.99

EXPLANATION:

Minimum transfer price is the marginal cost incurred by the company ehich is also known as variable cost of production. As the variable cost related to marketing is avoided if product not sold externally and fixed cost is being incurred in both the alternatives, they are not considered here.

therefore,

minimum transfer price = variable cost of production = $32.99

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Answer 2

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